A letter of intent (LOI) is the document that starts almost every commercial real estate transaction. It outlines the essential terms (price, deposit, due diligence period, financing contingencies, closing date, key representations) so both parties can confirm alignment before investing in the formal purchase agreement and lawyer-led drafting.
A well-written LOI gets a deal to the goal line faster; a poorly written one wastes weeks of legal time on misaligned expectations.
Most LOIs are explicitly non-binding except for a few specific provisions: confidentiality, exclusivity (the seller agrees not to negotiate with other buyers during a stated window), and sometimes the obligation to negotiate in good faith. The economic terms themselves are typically non-binding placeholders that define negotiating positions, not legal commitments.
This is the LOI's core purpose: alignment without commitment.
The exceptions matter. If an LOI is silent on whether it's binding, courts in some jurisdictions may treat it as a binding contract on its face.
If the parties say 'binding upon execution of a definitive agreement' but never sign one, disputes can arise about whether the LOI itself created enforceable obligations. The cleanest LOIs spell out exactly which provisions are binding, which are not, and what happens if the formal agreement isn't signed.
Sophisticated buyers and sellers treat the LOI as the most important document in the deal, even though it's officially non-binding. This is when leverage is highest: both parties are still optimistic, alternatives haven't been fully explored, and small concessions can shape the entire economic structure.
By the time the formal purchase agreement is being drafted, the major terms are already locked in. Spending an extra week on the LOI can save a month of negotiation later.
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